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Item 1A. Risk Factors

2024-03-07 compared with 2023-03-14 · 82 added, 176 removed, 166 unchanged (61% of the section changed)

Our business, financial condition, results of operations, cash flows and/or stock price could be materially adversely affected by any of the risks and uncertainties described below.

Our business, financial condition, results of operations, cash flows and/or stock price could be materially adversely affected by any of the risks and uncertainties described below, individually or in combination.

Such risk factors and uncertainties could also affect whether any forward-looking statements in this Annual Report on Form 10-K ultimately prove to be accurate.

Risks Related to Market Conditions

Widespread public health crises, epidemics and pandemics , and the related threat of recession and other economic repercussions have had, and may continue to have, a significant impact on our business, and depending on its continued effects on the oil and gas industry, could have a material adverse effect on our business, liquidity, consolidated results of operations, and consolidated financial condition.

Our clients in the oil and gas industry have historically accounted for a substantial portion of our revenues.

W idespread public health crises, epidemics and pandemics , threat of recession and related economic repercussions created significant volatility, uncertainty and turmoil in the oil and gas industry during 2022 and 2021 and continue to disrupt the normal operations of many businesses, including the temporary closure or scale-back of business operations and/or the imposition of either quarantine or remote work or meeting requirements for employees, either by government order or on a voluntary basis.

While the effects of the COVID-19 outbreak recently appear to be lessening significantly, widespread public health crises, epidemics and pandemics spreading throughout the U.S.

and globally could result in significant disruptions.

The global economy, our markets and our clients’ businesses have been, and may continue to be, materially and adversely affected by widespread public health crises, epidemics and pandemics .

The threat of recession on the economic environment may affect client demand for our services.

The threat of recession on our economic environment and political uncertainty may reduce the availability of liquidity and credit and, in many cases, reduce demand for our clients’ products.

Disruption of the credit markets could also adversely affect our clients’ ability to finance ongoing maintenance and new capital projects, resulting in contract cancellations or suspensions, capital project delays, repurposing of infrastructure, and infrastructure closures.

An extended or deep recession may result in plant closures or other contractions in our client base.

Demand for our services is sensitive to oil and gas prices, global oil supply and other factors which impact our client’s current and future spending levels.

Global oil and gas supply and demand are impacted by several factors including global economic conditions, geopolitical events, widespread public health crises, epidemics and pandemics, and domestic and global inflationary pressures which may reduce the availability of liquidity and credit and, in many cases, reduce demand for our clients’ products.

Disruptions or volatility in these markets could also adversely affect our clients’ decisions to fund ongoing maintenance and new capital projects, resulting in contract cancellations or suspensions, capital project delays, repurposing of infrastructure, and infrastructure closures.

These factors may also adversely affect our ability to collect payment for work we have previously performed.

Furthermore, our ability to expand our business could be limited if, in the future, we are unable to increase our credit capacity under favorable terms or at all.

Such disruptions, should they occur, could materially impact our results of operations, financial position or cash flows.

Such disruptions, should they occur, could materially impact our results of operations, financial position, credit capacity or cash flows.

Extended periods of low prices for crude oil can have a material adverse impact on our results of operations, financial condition, and liquidity.

While we continue to expand our market presence in the areas of aerospace and defense, construction, chemical processing, manufacturing, power generation, and public infrastructure, among other industries, economic downturns within the oil and gas industry including falling crude oil prices, have resulted in, and could in the future, result in reduction in demand for our services.

While we continue our efforts to expand our market presence in the areas of aerospace and defense, construction, chemical processing, manufacturing, power generation, and public infrastructure, among other industries, economic downturns within the oil and gas industry including falling crude oil prices, have resulted in, and could in the future, result in reduced demand for our services.

Our revenues are heavily dependent on certain industries.

Sales of our services are dependent on clients in certain industries, particularly the refining and petrochemical industries.

As we have experienced in the past, and as we expect to occur in the future, downturns characterized by diminished demand for services in these industries as well as potential changes due to consolidation or changes in client businesses or governmental regulations, could have a material impact on our results of

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operations, financial position or cash flows.

Certain clients have employees represented by unions and could be subject to temporary work stoppage which could impact our activity level.

We sell our services in highly competitive markets, which places pressure on our profit margins and limits our ability to maintain or increase the market share of our services.

Certain industries and clients have employees represented by unions and could be subject to temporary work stoppages which could impact our activity level.

We sell our services in highly competitive markets, which can limit our ability to increase prices and maintain or increase the market share of our services.

Our competition generally stems from other outside service contractors, many of whom offer a similar range of services.

Future economic uncertainty could generally reduce demand for industrial services and thus create a more competitive bidding environment for new and existing work.

No assurances can be made that we will continue to maintain our pricing model and our profit margins or increase our market share.

No assurances can be made that we will continue to maintain our pricing model or increase our market share or profitability.

Our ongoing investments in new client markets involve significant risks, could disrupt our current operations and may not produce the long-term benefits that we expect.

Our ability to compete successfully in new client markets depends on our ability to continue to deliver innovative, relevant and useful services to our clients in a timely manner.

As a result, we have invested, and expect to continue to invest, resources in developing products and services to new clients.

Such investments may not prioritize short-term financial results and may involve significant risks and uncertainties, including encountering new competitors.

As a result, we have invested, and expect to continue to invest, resources in developing products and services to market to new clients.

Such investments may not prioritize short-term financial results and may involve significant risks and uncertainties, including encountering new, well established competitors.

We may fail to generate sufficient revenue, operating margin or other value to justify our investments in such new client markets, thereby harming our ability to generate revenue.

Ukraine Conflict .

The Company does not have employees or operations in Russia or Ukraine.

Sanctions and other trade controls imposed by the United States and other governments in response to Russia’s military operations in Ukraine could impact our supply chain and our clients’ businesses in future periods.

While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s sales, cost of procuring raw materials, or distribution costs in future periods.

We may not be able to meet the NYSE’s continued listing requirements and rules, and the NYSE may delist our common stock, which could negatively affect our company, the price of our common stock and our shareholders’ ability to sell our common stock and may lead to potential events of default on existing debt instruments.

The NYSE has several listing requirements set forth in the NYSE Listed Company Manual.

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Section 802.01B of the NYSE Listed Company Manual requires that either our average global market capitalization (inclusive of common and preferred equity) or our total shareholders’ equity exceed $50.0 million.

On June 17, 2022, we were notified by the NYSE that we were no longer in compliance with the NYSE continued listing standards set forth in Section 802.01B of the NYSE Listed Company Manual due to the fact that our average global market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, our shareholders’ equity was less than $50.0 million.

If our average global market capitalization over a consecutive 30 trading-day period drops below $15.0 million, the NYSE will initiate delisting proceedings.

As required by the NYSE, we notified the NYSE of our intent to cure the deficiency and restore our compliance with the NYSE continued listing standards.

In accordance with applicable NYSE procedures, on August 1, 2022 we submitted a plan advising the NYSE of the definitive actions we have taken and are taking that would bring us into compliance with NYSE continued listing standards within 18 months of receipt of the written notice.

The NYSE accepted the plan and our common stock will continue to be listed and traded on the NYSE during the 18-month period from June 17, 2022, subject to our compliance with other NYSE continued listing standards and continued periodic review by the NYSE of our progress with respect to our plan.

On November 2, 2022, we were notified by the NYSE that the average closing price of our common stock, over a prior 30 consecutive trading day period was below $1.00 per share.

We had a period of six months following the receipt of the notice to regain compliance with the minimum share price requirement, with the possibility of extension at the discretion of the NYSE.

On November 2, 2022 our shareholders approved a proposal to authorize the Board to implement the Reverse Stock Split (as defined below), which became effective on December 21, 2022.

On January 3, 2023, we were notified by the NYSE that we had regained compliance with the minimum share price continued listing standard.

Although we have regained compliance with Section 802.01C of the NYSE Listed Company Manual within the cure period, there is no assurance that we will remain in compliance with Section 802.01C of the NYSE Listed Company Manual or other NYSE continued listing standards in the future.

A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock;

There is no assurance that we will remain in compliance with Section 802.01B and Section 802.01C of the NYSE Listed Company Manual or other NYSE continued listing standards in the future.

A delisting of our common stock from the NYSE could negatively impact us by, among other things, reducing the liquidity and market price of our common stock;

reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing;

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and causing us reputational harm with investors, our employees, and parties conducting business with us.

A delisting of our common stock could constitute a “fundamental change” under the terms of our 5.00% Convertible Notes due 2023 (the “Notes”), requiring us to make an offer to

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repurchase the Notes at par.

There can be no assurance we would have sufficient funds available to us to repurchase the Notes if required to do so.

Failure to repurchase the Notes also could cause a cross-default under our 2022 ABL Credit Facility and Term Loans, which would permit the holders of the indebtedness to accelerate the maturity thereof and proceed against their collateral and could have a material adverse effect on our business and financial condition.

Risks Related to Our Operations

If we are not able to implement commercially competitive services in a timely manner in response to changes in the market, client requirements, competitive pressures and technology trends, our business and results of operations could be materially and adversely affected .

Competition can place downward pressure on our prices and profit margins.

Competition can place downward pressure on our prices and profitability.

Our share of the market for our services is characterized by continual technological developments to provide better and more cost-effective services.

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Likewise, if our proprietary technologies, equipment, facilities, or work processes become obsolete, we may no longer be competitive, and our business and results of operations could be materially and adversely affected.

No assurances can be made that we will be successful in hiring or retaining members of a skilled technical workforce.

We have a skilled technical workforce and an industry recognized technician training program for each of our service lines that prepares new employees as well as further trains our existing employees.

The competition for these individuals is intense.

The failure to retain these individuals, or failure to attract new employees, could adversely affect our ability to perform our obligations on our clients’ projects or maintenance and consequently could negatively impact our ability to meet the demand for our products and services.

Unsatisfactory quality of service execution, including safety performance, can affect client relationships, eliminate or reduce revenue streams from our largest clients, result in higher operating costs and negatively impact our ability to hire and retain a skilled technical workforce.

The services we provide could incur quality of execution issues that may be caused by our workforce personnel and/or components we manufacture or purchase from other manufacturers or suppliers.

If the quality of our services does not meet our clients’ expectations or satisfaction, then our sales and operating earnings, and, ultimately, our reputation, could be negatively impacted.

Additionally, our workers are subject to the normal hazards associated with providing services at industrial facilities.

Even with proper safety precautions, these hazards can lead to personal injury, loss of life, destruction of property, plant and equipment, lower employee morale and environmental damage.

While we are intensely focused on maintaining a strong safety environment and minimizing the risk of accidents, there can be no assurance that these efforts will be effective.

Poor safety performance may limit or eliminate potential revenue streams, including from many of our largest clients, and may materially increase our operating costs, including increasing our required insurance deductibles, self-insured retention and insurance premium costs.

Our business depends upon the maintenance of our proprietary technologies and information.

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If we are unable to renew or replace these contracts, or if we renew on less favorable terms, we may suffer a material reduction in revenue and earnings.

No assurances can be made that we will be successful in hiring or retaining members of a skilled technical workforce.

The competition for these individuals is intense.

Due to the impacts of COVID-19 and economic uncertainty, we implemented cost reductions and organizational changes which increases our risk of losing key skilled employees.

As the economic environment and demand for our services recovers, we will be under pressure to re-hire or onboard employees during a time when there could be a significant demand for skilled labor.

The loss of these individuals, or failure to attract new employees, could adversely affect our ability to perform our obligations on our clients’ projects or maintenance and consequently could negatively impact the demand for our products and services.

The loss or unavailability of any of our executive officers or other key personnel could have a material adverse effect on our business.

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The loss or unavailability of any of our executive officers or other key employees could have a material adverse effect on our business operations.

The services we provide could incur quality of execution issues that may be caused by our workforce personnel and/or components we purchase from other manufacturers or suppliers.

If the quality of our services does not meet our clients’ expectations or satisfaction, then our sales and operating earnings, and, ultimately, our reputation, could be negatively impacted.

Additionally, our workers are subject to the normal hazards associated with providing services at industrial facilities.

Even with proper safety precautions, these hazards can lead to personal injury, loss of life, destruction of property, plant and equipment, lower employee morale and environmental damage.

While we are intensely focused on maintaining a strong safety environment and minimizing the risk of accidents, there can be no assurance that these efforts will be effective.

Additional impairments of our intangible and other long-lived assets, and changes in the estimated useful lives of intangible assets could have a material adverse impact on our results of operations and financial condition.

As a result of past acquisitions, intangible assets comprise a significant portion of our total assets.

As of December 31, 2022, our intangible

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assets totaled $75.4 million.

Our long-lived assets, including our finite-lived intangible assets, are tested for impairment when circumstances indicate that the carrying amount may not be recoverable.

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These organizational changes resulted in restructuring charges and other cost-saving opportunities.

However, in order to implement this or any other future cost savings or business improvement initiatives, we expect to incur additional expenses, which could adversely impact our financial results prior to the realization of the expected benefits associated with the initiatives.

However, to implement this or any other future cost savings or business improvement initiatives, we expect to incur additional expenses, which could adversely impact our financial results prior to the realization of the expected benefits associated with the initiatives.

Due to numerous factors or future developments, we may not achieve cost reductions or other business improvements consistent with our expectations or the benefits may be delayed.

These factors or future developments could include (i) the incurrence of higher than expected costs or delays in reassigning and retraining remaining employees or outsourcing or eliminating duties and functions of eliminated employees, (ii) unanticipated delays in discharging employees in eliminated positions as a result of regulatory or legal limitations on employee terminations in certain jurisdictions, (iii) actual savings differing from anticipated cost savings, (iv) anticipated benefits from business improvement initiatives not materializing and (v) disruptions to normal operations or other unintended adverse impacts resulting from the initiatives.

We may also decide to reduce, suspend or terminate our cost-saving and business improvement initiatives at any time before achieving the estimated benefits or after a limited period of time.

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Our initiatives may negatively affect our ability to retain and attract qualified personnel, who may experience uncertainty about their future roles with us.

We may experience inflationary pressures in our operating costs and cost overruns on our projects.

A number of our clients are serviced under fixed price contracts or contracts including a combination of fixed and variable elements, where we bear a portion of the risk for cost overruns.

Under such contracts, prices are established in part on cost and scheduling estimates, which are based on a number of assumptions, including assumptions about future economic conditions, prices and availability of subcontractors, materials and other exigencies of our services.

Our profitability depends heavily on our ability to make accurate estimates.

Inaccurate estimates, or changes in other circumstances, such as unanticipated technical problems, difficulties obtaining permits or approvals, changes in local laws or labor conditions, weather delays, cost of raw materials, trade disputes and tariffs, currency fluctuations, inflation pressures or our suppliers’ or subcontractors’ inability to perform could result in substantial losses, as such changes adversely affect the revenues and profitability recognized on each project.

Current and future inflationary volatility driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies as well as the ongoing military conflict between Russia and Ukraine could further impact our ability to make accurate estimates, which could have an adverse impact on our business, cash flows and profitability.

Additionally, we may incur significant costs in excess of estimates due to changes to work orders requested by our clients that materially change the scope of work to be completed by us.

Our services are usually performed pursuant to purchase orders issued under written client agreements.

We may be required to perform additional services that were not contemplated in the pricing related to any such purchaser order, including services resulting from client requested changes, incomplete or inaccurate engineering, changes in project specifications and other similar information provided to us by the client which form the basis for our original estimates.

We recognize revenue proportionately as costs are incurred, therefore, we may be required to adjusted revenue recognize on fixed contract projects in the event we incur actual costs in excess of our estimates for such project if we are unable to obtain adequate compensation for any such additional services.

Economic, political and other risks associated with international operations could adversely affect our business .

A portion of our operations are conducted and located outside the U.S., and accordingly, our business is subject to risks associated with doing business internationally, including changes in foreign currency exchange rates, instability in political or economic conditions, difficulty in repatriating cash proceeds, differing employee relations, differing regulatory environments, trade protection measures, and difficulty in administering and enforcing corporate policies which may be different than the normal business practices of local cultures.

Further, the presence of our offices and operations throughout the world creates greater financial and operational risks due to the nature of our operations being conducted at various locations.

Our international business operations may include projects in countries where corruption is prevalent.

Although we have implemented continue to and enforce policies and procedures designed to ensure compliance with the U.S.

Foreign Corrupt Practices Act and the United Kingdom Bribery Act, there can be no assurance that all of our

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employees, contractors or agents, including those representing us in countries where practices which violate such anti-corruption laws may be customary, will not take actions in violation of our policies and procedures.

Although we have implemented and continue to enforce policies and procedures designed to ensure compliance with the U.S.

Foreign Corrupt Practices Act and the United Kingdom Bribery Act, as well as internal controls, policies and procedures, and employee training and compliance programs to deter prohibited practices more generally, there can be no assurance that all of our employees, contractors or agents, including those representing us in countries where practices which violate such anti-corruption laws may be customary, will not take actions in violation of, or circumventing, our policies and procedures.

Any violation of foreign or U.S.

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Business acquisitions and divestitures entail risk for investors.

From time to time, we seek growth through strategic acquisitions while also evaluating our portfolio for potential divestitures in the specialty maintenance and specialty industrial services, including inspection, engineering assessment and mechanical services to complement, diversify or rationalize our existing business.

From time to time, we seek growth through strategic acquisitions while also evaluating our portfolio for potential divestitures in specialty maintenance and specialty industrial services, including inspection, engineering assessment and mechanical services to complement, diversify or rationalize our existing business.

We may also acquire other businesses that enhance our services or geographic scope and/or divest certain businesses or service offerings to rationalize our operations and take advantage of strategic opportunities.

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To the extent we issue stock or other rights to purchase stock, including options or other rights, existing shareholders may be diluted and earnings per share may decrease.

In addition, acquisitions may result in the incurrence of additional debt.

In addition, acquisitions may result in the incurrence of additional debt of the acquired businesses, or we may incur additional debt to finance such acquisitions.

The price of our outstanding securities may be volatile.

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In addition to general economic and political conditions, and in addition to the other factors identified under this Item 1A “Risk Factors”, the following factors may affect our sales and operating results:

the timing of significant client orders, the timing of planned maintenance projects at client facilities, changes in competitive pricing, wide variations in profitability by product line, variations in operating expenses, rapid increases in raw material and labor costs, the timing of announcements or introductions of new products or services by us, our competitors or our respective clients, the acceptance of those services, our ability to adequately meet staffing requirements with qualified personnel, relative variations in manufacturing efficiencies and costs, and the relative strength or weakness of international markets.

increases in raw material and labor costs, the timing of announcements or introductions of new products or services by us, our competitors or our respective clients, the acceptance of those services, our ability to adequately meet staffing requirements with qualified personnel, relative variations in manufacturing efficiencies and costs, and the relative strength or weakness of international markets.

Since our quarterly and annual revenues and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful and should not be relied upon as indicators of our future performance.

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Credit losses could materially and adversely affect our financial condition, results of operations and cash flows.

As a result of our geographically diverse and decentralized operations within the United States and other countries around the world, we are more susceptible to certain risks.

We have offices and operations throughout the world.

This creates greater financial and operational risks due to the nature of our operations being conducted at various locations.

While we have robust internal controls, policies and procedures, and employee training and compliance programs to deter prohibited practices, they may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies or from material violations of applicable laws and regulations.

We may experience inflationary pressures in our operating costs and cost overruns on our projects.

A small portion of our clients are serviced under fixed price contracts or contracts including a combination of fixed and variable elements, where we bear a portion of the risk for cost overruns.

Our profitability for these contracts depends heavily on our ability to make accurate estimates.

Current and future inflationary volatility driven by, among other things, supply chain disruptions and governmental stimulus or fiscal policies as well as geopolitical conflicts such as the ongoing military conflict between Russia and Ukraine and other geopolitical issues impacting global trade could further impact our ability to make accurate estimates, which could have an adverse impact on our business, cash flows and profitability.

Increasing scrutiny and changing expectations from investors, customers and other market participants with respect to sustainability or environmental, social and governance (“ESG”) matters may impose additional costs on us or expose us to reputational or other risks .

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While we have policies and initiatives in place related to our ESG practices, the recent increased focus on ESG matters may impact our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices.

Our ESG initiatives, intentions and expectations are subject to change and there can be no assurance that our ESG policies and procedures will continue.

Further, regulatory requirements related to ESG continue to evolve and may increase our costs of compliance.

If we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG matters as

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they continue to evolve or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a regulatory or legal requirement to do so, we may suffer reputational damage.

While we may create and publish voluntary disclosures regarding ESG matters from time to time, certain statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith.

If we do not adapt to or comply with investor or other stakeholder expectations and standards on ESG matters as they continue to evolve or if we are perceived to have not responded appropriately to the growing concern for ESG issues, regardless of whether there is a regulatory or legal requirement to do so, we may suffer reputational damage.

While we may create and publish voluntary disclosures regarding ESG matters from time to time, we could be criticized for the accuracy, adequacy or completeness of the disclosure related to our ESG-related practices and initiatives, commitments and goals, and progress against those goals.

Certain statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith.

Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and lack of an established, single approach to identifying, measuring and reporting on many ESG issues.

If our ESG-related data, processes or reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our goals within the scope of ESG on a timely basis, or at all, our reputation could be adversely affected.

In addition, organizations that provide rating information to investors on ESG matters may assign unfavorable ratings to Team or our industries, which may lead to negative investor sentiment and the diversion of investment to other companies or industries, which could have a negative impact on our stock price and our costs of capital.

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Risks Related to Financing Our Business

We may not be able to continue as a going concern.

The audit opinion and notes that accompany our consolidated financial statements for the year ended December 31, 2022, disclose a “going concern” qualification to our ability to continue in business.

The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern.

We have suffered recurring operating losses related to COVID-19 and the related economic repercussions and difficult market conditions.

Prior to the recent financing transactions discussed below, the Company required additional liquidity to continue its operations over the next twelve months.

During 2022, revenues and margins continued to be pressured by inflationary costs including labor, materials, and transportation resulting in further operating losses.

As of December 31, 2022, we were in compliance with our debt covenants;

however, our financial forecasts as of December 31, 2022 indicated insufficient cash flows from operations to address our near-term liquidity needs and maintain compliance with our debt covenants within one year following the date that our consolidated financial statements are issued.

As discussed further in Note 12 – Debt , during 2022, the Company executed a number of amendments to its debt instruments, including amendments to our 2022 ABL Credit Facility, Subordinated Term Loan Credit Agreement, Notes and Term Loan Credit Agreement and entered into a new Substitute Insurance Reimbursement Facility Agreement.

Such amendments and agreement provided improved liquidity and runway to execute on business turnaround plans, support working capital needs and pursue potential strategic alternatives.

While such amendments and agreements provided us with additional funding to meet our near-term liquidity needs and included a waiver of our debt covenants through June 30, 2023, there can be no assurance that (i) our lenders will provide additional waivers or amendments in the event of future non-compliance with our debt covenants, or other possible events of default that could happen, or (ii) that we will generate adequate liquidity to fund our operations, or to satisfy the obligations under our Notes and potential acceleration of debt maturities that may become due.

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Following the various amendments and agreement, we evaluated the Company’s liquidity within one year after the date of issuance of our consolidated financial statements to determine if there is substantial doubt about the Company’s ability to continue as a going concern.

In the preparation of this liquidity assessment, we applied judgment to estimate the projected cash flows of the Company, including the following:

(i) projected cash outflows, (ii) projected cash inflows, and (iii) excess availability level under the Company’s existing debt arrangements.

The cash flow projections were based on known or planned cash requirements for operating and financing costs and include management’s best estimate regarding future customer activity levels, pricing for its services and for its supplies and other factors.

Actual results could vary significantly from those projections.

We do not believe, based on the Company’s forecast, that current working capital, cash flow from operations, and capital expenditure financing is sufficient to fund the operations, maintain compliance with our debt covenants (as amended), and satisfy the Company’s obligations, specifically with respect to the Notes described below, as they come due within one year after the date of issuance of these consolidated financial statements.

Full disclosure of the going concern qualification appears in the notes to the financial statements, see Note 1 – Summary of Significant Accounting Policies and Practices .

We are subject to risks associated with indebtedness under our credit facilities, including the risk of failure to maintain compliance with financial covenants, the risk of being unable to make interest and principal payments when due and the risk of rising interest rates.

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If we do not generate enough cash to pay our debt service obligations, we may be required to refinance all or part of our debt, sell assets, borrow more money or raise additional equity capital.

Full disclosure of our debt appears under Item 7 – Liquidity, Capital Resources and Going Concern, Note 1 – Summary of Significant Accounting Policies and Practice, and Note 12 – Debt .

Disclosure of our debt appears under Item 7 – Liquidity and Capital Resources, Note 1 – Summary of Significant Accounting Policies and Practice, and Note 11 – Debt .

Our ability to maintain compliance with the financial covenants pursuant to the debt instruments we are party to is dependent upon our future operating performance and future financial condition, both of which are subject to various risks and uncertainties.

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If our lenders accelerate the repayment of debt, there is no assurance that we could refinance such debt on terms favorable to us or at all.

Our 2022 ABL Credit Facility and Term Loan bear interest at variable market rates.

If market interest rates increase, our interest expense and cash flows could be adversely impacted.

Based on borrowings outstanding as of December 31, 2022, an increase in market interest rates of 100 basis points would increase our interest expense and decrease our operating cash flows by approximately $1.3 million on an annual basis.

Our 2022 ABL Credit Facility, Term Loan and Subordinated Term Loan restrict our ability to, among other items, incur additional indebtedness, engage in mergers, acquisitions and dispositions and alter the business conducted by us.

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restrictions could adversely affect our ability to operate our businesses and may limit our ability to take advantage of potential business opportunities as they arise.

Transactions relating to our convertible debt securities may dilute the ownership interest of existing stockholders, or may otherwise depress the price of our common stock.

The Notes are convertible into 189,682 shares of common stock.

Upon conversion or maturity, we may settle the Notes in cash or in shares of common stock or a combination of cash and shares of common stock, in each case, at our election.

If the Notes are converted, our current intent is to settle the principal amount of the Notes in cash;

however, we cannot guarantee that we will have sufficient funds available to us at the time of any such conversions in order to effect settlement in that manner.

In such case, we could elect to settle the conversion obligation in a different combination of cash and shares of common stock or entirely in shares of common stock, depending on the circumstances.

To the extent we deliver shares of common stock upon conversion of the Notes, the ownership interests of existing stockholders would be diluted.

Any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock.

Our largest stockholder owns a meaningful percentage of our outstanding equity securities, which could limit the ability of other stockholders to influence corporate matters .

Our largest stockholder beneficially owned approximately 37.6% of the total voting power held by stockholders of our outstanding common stock as of March 10, 2023 (including PIPE Shares, as defined below, and shares issuable upon exercise of certain Warrants, as defined below, held by our largest stockholder in each case).

As a result, this stockholder may be able to exert influence over our affairs and policies.

This concentrated ownership could limit the ability of the remaining stockholders to influence corporate matters, and the interests of the large stockholders may not coincide with our interests or the interests of the remaining stockholders.

Our largest shareholder (Corre and certain of its affiliates) owns a meaningful percentage of our outstanding equity securities, which could limit the ability of other shareholders to influence corporate matters .

Our largest shareholder beneficially owned approximately 39.8% of the total voting power held by shareholders of our outstanding common stock as of March 5, 2024 (including common stock issued pursuant to the common stock subscription agreement with certain Corre holders and shares issuable upon exercise, subject to beneficial ownership limitation, of certain Warrants, as defined below, held by our largest shareholder in each case).

As a result, this shareholder may be able to exert influence over our affairs and policies.

This concentrated ownership could limit the ability of the remaining shareholders to influence corporate matters, and the interests of the large shareholder may not coincide with our interests or the interests of the remaining shareholders.

The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control.

Risks Related to Information Systems

Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security or those of third-party providers .

Our business and operations could suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security or those of third-party providers .

In the ordinary course of our business, we continue to increase dependencies on digital technologies to conduct our business.

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The secure maintenance of this information is critical to our business and reputation.

Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, ransomware, cyber fraud, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization.

inside our organization, or persons with access to systems inside our organization.

The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased.

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We and our third-party providers have been, and may continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate bank account information, passwords, or other personal information or to introduce viruses or other malware to our information systems.

We currently maintain insurance related to cybersecurity breaches and are exploring a range of steps to enhance our security protections and prevent future unauthorized activity.

Though we endeavor to mitigate these threats, cyber-attacks against us or our third-party providers and business partners remain a serious issue.

The pervasiveness of cybersecurity incidents in general and the risks of cyber-crime are complex and continue to evolve.

Fortunately, our cybersecurity posture continued to improve in 2022.

Several cybersecurity areas were automated, including a significant increase in automation of system patching.

Additionally, the company's attack surface was reduced by blocking remote logins from known high risk countries and physical logins by non-company devices at major company locations.

Interruptions in the proper functioning of our information systems could disrupt operations and cause increases in costs and/or decreases in revenues.

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If critical information systems fail or are otherwise unavailable, our business operations could be adversely affected.

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Risks Related to Regulations

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Our future effective income tax rates could be subject to volatility or adversely affected by our profit levels, changes in our business, reorganization of our business and operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the elections we make or changes in the valuation allowance for deferred tax assets, as well as other factors.

Additionally, the Organization for Economic Cooperation and Development’s (“OECD”) Base Erosion and Profit Shifting (“BEPS”) project has resulted in considerable new reporting obligations worldwide as OECD member countries have implemented its guidance.

The OECD continues to publish guidance pursuant to BEPS and other projects which, if adopted by member countries, may affect our tax positions in many of the countries in which we do business.

The Organization for Economic Co-operation and Development (the “OECD”), an international association comprised of 38 countries, including the United States, has issued proposals that change long-standing tax principles including on a global minimum tax initiative.

On December 12, 2022, the European Union member states agreed to implement the OECD’s Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two global corporate minimum tax rate of 15% on companies with revenues over a specific threshold, which would go into effect in 2024.

To date, various jurisdictions have enacted, or are in the process of enacting, legislation on these rules, and the OECD continues to release additional guidance.

While it is uncertain whether the U.S.

will enact legislation to adopt the minimum tax directive, certain countries in which we operate have adopted legislation, and other countries are in the process of introducing legislation to implement the minimum tax directive.

Further, the OECD issued administrative guidance providing transition and safe harbor rules that could delay the impact of the minimum tax directive.

We will continue to monitor the implementation of these rules by the countries in which we operate.

Our future effective tax rates could also be adversely affected by changes in tax laws, both domestically and internationally, or the interpretation of application thereof.

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Congress and foreign, state and local governments consider legislation that could increase our effective tax rate.

On August 16, 2022, legislation commonly known as the Inflation Reduction Act (the “IRA”) was signed into law.

Among other things, the IRA includes a 1% excise tax on corporate stock repurchases, applicable to repurchases after December 31, 2022, as well as a new 15% corporate alternative minimum tax based on book income.

We are in the process of evaluating the potential impacts of the IRA on us.

Our analysis of the effect of the IRA on us is ongoing and incomplete, and it is possible that the IRA (or implementing regulations, which have not yet been issued, and initial guidance, which was issued on December 27, 2022) could adversely impact our current and deferred federal tax liability.

We cannot determine whether, or in what form, other future tax legislation will ultimately be enacted or what impact any such legislation could have on our profitability.

We are also currently subject to audit in various jurisdictions, and these jurisdictions may assess additional income or other tax liabilities against us.

Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

Developments in an audit, litigation, or relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited .

On February 2, 2022, the Company entered into a Section 382 Rights Agreement (the “Section 382 Rights Agreement”) with Computershare Trust Company, N.A., as rights agent, to facilitate our ability to preserve our net operating losses and certain other tax attributes.

As of December 31, 2022, we had net operating loss carryforwards for U.S.

federal income tax purposes of $104.2 million.

Of this amount, $3.7 million expires in various dates through 2037 and $100.5 million has an indefinite carryforward period.

The Company’s ability to use its net operating losses and other tax attributes would be substantially limited if it experiences an “ownership change,” as such term is defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 2, 2022, we entered into a Section 382 Rights Agreement (the “Section 382 Rights Agreement”) with Computershare Trust Company, N.A., as rights agent, to facilitate our ability to preserve our net operating losses and certain other tax attributes.

Our ability to use our net operating losses and other tax attributes would be substantially limited if we experience an “ownership change,” as such term is defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”).

A company generally experiences an ownership change if the percentage of the value of its stock owned by certain “5-percent shareholders,” as such term is defined in Section 382 of the Code, increases by more than 50 percentage points over a rolling three-year period.

Similar rules may apply under state tax laws.

Our ability to use net operating losses to reduce future taxable income and liabilities may also be subject to annual limitations as a result of prior ownership changes and ownership changes that may occur in the future.

Our ability to use net operating losses to reduce future taxable income and liabilities may also be subject to annual limitations as a result of prior ownership changes and ownership changes

that may occur in the future.

The Section 382 Rights Agreement is intended to reduce the likelihood of an ownership change under Section 382 of the Code by deterring any Person (as such term is defined in the Section 382 Rights Agreement) or group of affiliated or associated Persons from acquiring beneficial ownership of 4.9% or more of our outstanding common shares.

Notwithstanding the foregoing, even if the Section 382 Rights Agreement deters an ownership change, it is possible that we will not generate taxable income in time to use such net operating losses before their expiration, or at all.

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”), as modified by the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, among other things, includes changes to the rules governing our U.S.

federal net operating losses.

Net operating losses arising in tax years beginning after December 31, 2017 are subject to an 80% of taxable income limitation (as calculated before taking the net operating losses into account) for tax years beginning after December 31, 2020.

In addition, net operating losses arising in tax years 2018, 2019, and 2020 are subject to a five-year carryback and indefinite carryforward, while net operating losses arising in tax years beginning after December 31, 2020 also are subject to indefinite carryforward but cannot be carried back.

Not all states conform to the Tax Act or CARES Act and some states have varying conformity to the Tax Act or CARES Act.

In future years, if and when a net deferred tax asset is recognized related to our net operating losses, the changes in the carryforward/carryback periods as well as the new limitation on use of net operating losses may significantly impact our valuation allowance assessments for net operating losses generated after December 31, 2017.

As such there is a risk that due to regulatory changes, such as suspensions on the use of net operating losses or other unforeseen developments, our existing net operating losses could expire or otherwise be unavailable to reduce future income tax liabilities, including for state

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tax purposes.

For these reasons, we may not be able to utilize some portion of our net operating losses even if we attain profitability.

Our operations and properties are subject to extensive environmental, health and safety regulations.

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Environmental laws and regulations generally impose limitations and standards for the characterization, handling, disposal, discharge or emission of regulated materials and require us to obtain permits and comply with various other requirements.

The improper characterization, handling, or disposal of regulated materials or any other failure by us to comply with increasingly complex and strictly-enforced federal, state, local, and international environmental, health and safety laws and regulations or associated permits could subject us to the assessment of administrative, civil and criminal penalties, the imposition of investigatory or remedial obligations or capital expenditure requirements, or the issuance of injunctions that could restrict or prevent our ability to operate our business and complete contracted services.

The improper characterization, handling, or disposal of regulated materials or any other failure by us to comply with increasingly complex and strictly-enforced federal, state, local, and international environmental, health and safety laws and regulations or associated permits could subject us to the assessment of administrative, civil and/or criminal penalties, the imposition of investigatory or remedial obligations or capital expenditure requirements, or the issuance of injunctions that could restrict or prevent our ability to operate our business and complete contracted services.

A defect in our services or faulty workmanship could result in an environmental liability if, as a result of the defect or faulty workmanship, a contaminant is released into the environment.

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As a result, there have been a variety of regulatory developments, proposals or requirements and legislative initiatives that have been introduced in the U.S.

and other parts of the world that are focused on restricting the emission of greenhouse gases.

The current Presidential administration has also emphasized its intention to actively pursue its policy goals of addressing global climate change through significant economy-wide reductions in greenhouse gases and hastening the transition from carbon-based energy sources.

The adoption of new or more stringent legislation or regulatory programs limiting greenhouse gas emissions from clients, particularly those in refining and petrochemical industries, for whom we provide repair and maintenance services, or reducing the demand for those clients’ products, could in turn affect demand for our products and services.

and other parts of the world that are focused on restricting the emission of greenhouse gases and enhancing greenhouse gas emissions disclosure requirements, including the SEC’s proposed rule on climate change disclosure, increased fuel efficiency standards, carbon taxes or cap and trade systems, restrictive permitting and incentives for renewable energy.

The current Presidential administration is actively pursuing its policy goals of addressing global climate change through significant economy-wide reductions in greenhouse gases and transitioning from carbon-based energy sources.

The adoption of new or more stringent legislation or regulatory programs limiting greenhouse gas emissions from clients, particularly those in refining and petrochemical industries, for whom we provide inspection, repair and maintenance services, or reducing the demand for those clients’ products, could in turn affect demand for our products and services.

Similarly, changing consumer preferences for goods or services relating to alternative sources of energy or emissions reductions and technological advances in fuel economy and energy generation devices or other technological advances could materially affect our clients, which in turn could negatively impact demand for our services and adversely affect our results of operations, financial condition, and liquidity.

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In addition, our manufacturing centers use electricity generated by burning fossil fuels, which releases carbon dioxide.

Increased energy or compliance costs and expenses as a result of any increased legal or regulatory requirements to limit and/or track GHG emissions may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.

Finally, most scientists have concluded that increasing greenhouse gas concentrations in the atmosphere may produce physical effects of climate change, such as increased severity and frequency of storms, droughts, floods and other climate events.

Such climate events have the potential to adversely affect our operations or those of our clients or suppliers, which in turn could have a negative effect on us, including by adversely impacting our results of operations, financial condition and cash flows.

Increased energy or compliance costs and expenses as a result of any increased legal or regulatory requirements to limit and/or track greenhouse gas emissions may cause disruptions in, or an increase in the costs associated with, the manufacturing and distribution of our products.

Scientists have concluded that increasing greenhouse gas concentrations in the atmosphere may produce physical effects of climate change, such as increased severity and frequency of storms, droughts, floods and other climate events.

Such climate events have the potential to adversely affect our operations or those of our clients or suppliers, including by damaging our manufacturing facilities, disrupting our supply chain and causing our suppliers to incur significant costs in responding to such impacts, which in turn could have a negative effect on us, including by adversely impacting our results of operations, financial condition and cash flows.

Such events, if increasing in their severity and frequency, may also adversely affect our ability to insure against the risks associated with such events, thus leading to greater financial risk for us in the conduct of our operations against the backdrop of such events.

We are subject to privacy and data security/protection laws in the jurisdictions in which we operate and may be exposed to substantial costs and liabilities associated with such laws and regulations.

The regulatory environment surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements.

The regulatory environment

surrounding information security and privacy is increasingly demanding, with frequent imposition of new and changing requirements.

Compliance with changes in privacy and information security laws and standards may result in significant expense due to increased investment in technology and the development of new operational processes, which could have a material adverse effect on our financial condition and results of operations.

In addition, the payment of potentially significant fines or penalties in the event of a breach or other privacy and information security laws, as well as the negative publicity associated with such a breach, could damage our reputation and adversely impact product demand and client relationships.

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Risks Related to Legal Liability

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Incidents that occur at these large industrial facilities or systems, regardless of fault, may be catastrophic and adversely impact our employees and third parties by causing serious personal injury, loss of life, damage to property or the environment, and interruption of operations.

Our contracts typically require us to indemnify our clients for injury, damage or loss arising out of our presence at our clients’ location, regardless of fault, or the performance of our services and provide for warranties for materials and workmanship.

We may also be required to name the client as an additional insured under our insurance policies.

We maintain limited insurance coverage against these and other risks associated with our business.

Due to the high cost of general liability coverage, we maintain insurance with a self-insured retention of $1.0 million and a deductible of $4.0 million per occurrence.

Our contracts typically require us to name a client as an additional insured under our insurance policies and indemnify our clients for injury, damage or loss arising out of our presence at our clients’ location, regardless of fault, or the performance of our services and provide for warranties for materials and workmanship.

We maintain a $6 million retention for indemnity coverage.

This insurance may not protect us against liability for certain events, including events involving pollution, product or professional liability, losses resulting from business interruption or acts of terrorism or damages from our breach of contract.

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Any future damages caused by our products or services that are not covered by insurance or are in excess of policy limits could have a material adverse effect on our results of operations, financial position or cash flows.

We are involved and are likely to continue to be involved in legal proceedings, which will increase our costs and, if adversely determined, could have a material effect on our results of operations, financial position or cash flows.

We are involved and are likely to continue to be involved in legal proceedings or governmental or regulatory inquiries, which will increase our costs and, if adversely determined, could have a material effect on our results of operations, financial position or cash flows.

We are currently a defendant in legal proceedings arising from the operation of our business and it is reasonable to expect that we will be named in future actions.

Most of the legal proceedings against us arise out of the normal course of performing services at client facilities, and include claims for workers’ compensation, personal injury and property damage.

We have also received notices from certain foreign government appointed administrative authorities stating noncompliance with the requirements of pandemic-related funding assistance programs we participated in related to the payment of a portion of employee wages, which may be required to be repaid.

Legal proceedings can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome.

An unsuccessful defense of a liability claim could have an adverse effect on our business, results of operations, financial position or cash flows.

General Risk Factors

Other risk factors may include interruption of our operations, or the operations of our clients due to fire, floods, hurricanes, earthquakes, power loss, war, political or civil unrest, telecommunications failure, terrorist attacks, labor disruptions, health epidemics and other events beyond our control.

Any of these factors, individually or in combination, could materially and adversely affect our future results of operations, financial position, cash flows and/or stock price and could also affect whether any forward-looking statements in this Annual Report on Form 10-K ultimately prove to be accurate.

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UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors